Ariba’s results and Spend Matters US analysis

Jason has provided an excellent analysis of Ariba’s third-quarter results – you can read his full analysis here, here and here.

I was particularly interested in his third post, where he gets into the competitive dynamics of the market. He talks about the recent Ariba analyst call -

On the call, management noted that the Ariba network is "fuelling wins across the board from big SAP shops such as DirecTV, to Oracle houses like Corinthian Colleges" and "our solution breadth and our Network coverage is also yielding wins against industry specialists. This was the case with a win at a fast growing biotech company, Human Genome Sciences, who selected Ariba P2P over both ERPs and niche providers. And similarly, one of the nation's largest healthcare companies selected Ariba for both procurement content and PO/invoice automation...”

Jason doesn’t question that Ariba are winning significant new business – and indeed their overall results are impressive, with overall revenue up almost 50% year on year (although that does include Quadrem). The integration of Quadrem appears to be going well, and the continuing focus on the ‘network’ side of the business seems to be paying off, and is certainly appealing to investors. (Although even Ariba of course weren’t immune to last week’s sell-off).  But as Jason continues -

But in practice, the market is more competitive than it's ever been. And Ariba is only winning one piece -- a nice, meaty one, mind you -- of a growing pie. It's essential to break apart Ariba's competitive success (and failures) by solution area.

He sees Ariba facing strong competitive pressure in the upstream areas – spend analytics, sourcing and so on, “where customers prioritize functional capability”. That comes from specialists like BravoSolution and Emptoris as well as the ERP players.

Our research suggests that in the upstream areas, Ariba is winning less than 20% of the number of deals in the market that result in a new vendor getting the business (either takeaways or initial buying decisions). The market segment where Ariba is seeing a greater percentage of deals is certainly downstream in an area inclusive of eProcurement, e-invoicing, supplier enablement, supplier connectivity, supply chain finance, etc.

In the downstream arena - purchase to pay, e-invoicing and similar - there is a different competitive landscape, and while Jason believes Ariba have more traction here (and of course they are targeting both buyers and suppliers), the competition is still ferocious, with “a range of vendors capable of providing surprisingly sophisticated solutions (e.g., Verian, ePlus) as well as vendors like Coupa that bring both novel concepts and user interfaces that really aren't directly comparable to Ariba”.

To put Ariba’s wins in perspective, Jason has talked to a couple of competitors on the P2P side.  Coupa reckon they have had around 14 wins in 10 different sectors this year; while Hubwoo claim 12 this year, similarly spread by sector.  Jason again -

Now, both Coupa and Hubwoo had losses as well against Ariba and others, but we share the wins for comparative purposes as Ariba does in their earnings call (we don't hear about Ariba's failed efforts on the earnings call, now do we).

His point is that the market is highly competitive, and is growing in total, so Ariba’s performance, good though it is, needs to be put into that context.  But if you’re an Ariba client or considering going in that direction, it’s well worth reading the full posts.

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